What is ROAS, and why should you care?

  • Categories:

    Media Strategy

  • Date:

    August 6, 2020

What is ROAS, and why should you care?

Media Strategy

Chances are, you’ve heard about ROI since your first day on the job (or your Marketing 101 class in college). But what is ROAS, and how much should you care about it for your brand?

What is ROAS?

ROAS (return on ad spend) measures revenue generated for every dollar spent on an advertising campaign. ROAS indicates the success of your specific campaign, not your overall ROI (return on investment). Put another way: If you advertise to a customer, will you convert a purchase? Can you capture that customer and return a sale?

How is it different from ROI?

ROAS looks only at a brand’s ad spend, making it narrower than ROI. Each company will have its own definitions and methodologies for calculating ROI. In some cases, ROAS and ROI could be the same thing.

Typically, ROI considers multiple costs and marketing levers (in addition to ad spend) as well as overall budgets for a category or business line.

True ROI is often difficult and expensive to measure — with long lead times — especially if your products have an intricate path to purchase (if you’re selling direct-to-consumer or via e-commerce channels, ROI measurement gets a little easier).

Why is ROAS important?

In e-commerce and lower-funnel campaigns, ROAS is a critical factor for measurement and campaign optimization. Instead of waiting months to understand how much revenue your advertising generated, ROAS is a near-real-time metric. ROAS gives ad buyers insight into what tactics are driving immediate sales, so brands can make informed optimizations throughout an entire campaign.

Newer measurements including ROAS are gaining importance for the home and building category, where products that previously targeted only trade audiences are becoming more relevant for consumers.

How can Wray Ward help you optimize your ROAS?

Just like a skilled financial advisor will maximize your investments by navigating changing market conditions, our Connections team has the experience and deep understanding needed to make strategic decisions that will grow your business and keep you on the path toward success. We use advanced algorithms that are anything but set-and-forget, optimizing against return metrics while also looking at other factors in context.

Our team taps into a mixture of artificial intelligence (AI) tools and human instinct to:

  • Determine percentage of advertising budget to dedicate to ROAS goal
  • Cap ROAS to avoid inflating the metric (e.g., selling to people who already planned to buy)
  • Consider and recommend the most profitable cadence for your campaigns
  • Look at total sales volume to ensure ROAS correlates positively with sales
  • Successfully navigate digital advertising walled gardens
  • Turn off ads to repeat customers, reserving ad spend for all new customers

Campaign design and measurement depend on the brand’s larger objectives. For instance, if you want to grab market share from a competitor, we may focus on competitive conquesting. This is a great example of when ROAS may slightly decline, yet the campaign would still be successful as long as it delivered on the brand objective(s).

On the other hand, to improve ROAS and close the sale, we would allocate 100% of your budget for an Amazon campaign into reaching people who are already searching for your brand on the site.

Is ROAS always the most important metric?

No, not always. You should consider these points when assessing your ROAS:

  • As you advertise to an audience that is closer and closer to the point of purchase, your ROAS is bound to increase. Why? Because you’re advertising to an audience that is likely to buy your category (and maybe even your brand) without advertising. That’s why, at Wray Ward, we look at not only ensuring that ROAS improves over time, but also ensuring our clients see a meaningful lift in total sales. This shows ad dollars are still converting prospects instead of reaching a customer that was already bound to purchase.
  • How heavily you weigh ROAS will also depend on your larger objectives and what you’re trying to achieve. You may want to focus heavily on ROAS if you’re exclusively after customers in the lower part of the sales funnel. On the other hand, mass reach and brand likability become more important if you only want to target customers at the top of the funnel. Meanwhile, the smartest marketers are often those who land somewhere in the middle and have their eye squarely on the entire customer journey.

The Bottom Line on ROAS

So, what’s the bottom line? ROAS should be one (extremely valuable, but still just one) element used in the design, measurement and optimization of your online advertising investment. You need a comprehensive customer strategy to address audiences up and down the sales funnel, striking the right balance of attracting new customers and converting high-intent customers.

To maximize your success:

  • Strive to maintain a healthy and efficient ROAS as well as an impactful increase in branding metrics such as awareness and relevancy
  • Set long-term goals for new prospects, since it will likely take more time to convert prospects to a sale versus brand loyalists
  • Lean into AI, but remember you need a human touch to win human hearts and minds
  • Finally, partner with an experienced team that knows how to help you get the most for your ad spend

Have questions about ROAS? Email me.

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